28.

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Q no 1:

a) Who are the buyers? Identify three needs/wants of the consumers that a smartwatch fulfills.
ANS: Buyers of a smart watch are individuals, especially technology loving people. Following are
the three needs & wants that smart watch fulfills.
1. Personal assistant & information
2. Medical & Health Uses
3. Wellness
b) Who are the sellers? Identify three sellers and highlight their differentiating features.
ANS: The sellers of the smart watches are the smart watch industries. Following are the three
sellers with their differentiating features.
1. Apple – Unique Operating system –
2. Pebble – 6 day long battery life
3. Samsung – Low Price , could be used independently from other devices

Q no 2:

a) Apple watch is a consumer/capital good.

ANS: Apple watch is a consumer good, it is produced for present consumption not used to
produce goods and services
b) Study of the smartwatch industry is a microeconomic/macroeconomic topic.
ANS: Smart watch industry is a microeconomics topic because in microeconomics we look at the
individual unit weather he is a firm or industry.

Q no 3:

a) Sketch a diagram for (a) smartwatch market and (b) traditional watch market to reflect the
above scenario i.e. reflect the growth from 2014 to 2020. State your assumptions.

ANS:

a) Smart Watch Market.

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Smart Watch
400

350

300

250

200

150

100

50

0
2013 2014 2015 2016 2017 2018 2019 2020 2021

b) Traditional Watch Market.

TRADITIONAL WATCH
400

350

300

250

200

150

100

50

0
2013 2014 2015 2016 2017 2018 2019 2020 2021
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Chart Title
400

350

300

250

200

150

100

50

0
2013 2014 2015 2016 2017 2018 2019 2020 2021

Smart Watch Traditional Watch

Assumptions: 1/3
1) Growth of Smart watch industries will be increase 250% till 2020.
you should have shown
2) Traditional watch industry initially increase to 2018 & then decrease.
demand/supply for each market
3) Sales of smart watch surpass traditional watch sales in 2018.
and then shift demands
Q no 4: Explain, using a demand-supply diagram, the “complementarity between smartwatches
according toand
the information
phones”.

ANS: Due to complementarity between smart watches and phones , If the Price of Phone accessories
increase the demand for a smart watch decrease.

1.5/3
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Increase in a price of accessories

Decrease in a price of accessories
Price of phone
accessories
increases

Attributes and pricing of accessories such as smart watches is the key weapon in the mobile phone
competitive battle because people would like to buy the phone of those brands that have both smart
watches & Phone.

Q no 5:

a) What is/are the dependent variable/s in the model?

ANS: In this model, QAW (Weekly demand of apple watches) is dependent variable (in the left
side of equation).

b) What is/are the independent variable/s in the model?

ANS: In this model PAW, PGearS, PPebble, PiPhone6 & A (all the variable right side of the equation) is
independent variables. The weekly demand of apple watches depend on these variables.

c) Explain the “sign” of the coefficients of the following variables i.e. explain why the coefficient of
the variable is negative or why it is positive? Use the right terminologies.

I. PAW (Price of apple watch):

The sign of the coefficients PAW (Price of apple watch) is (-240) negative, which mean
there is an inverse relation between Price of apple watch (this variable) with the QAW
(dependent variable). If the price of apple watches increase, the quantity demanded of
apple watches decrease, if the price of apple watches decrease, the quantity demanded
of apple watch increase. Because this is the basic law of Demand, when price of a
product rises, quantity demanded decreases; as price falls, quantity demanded
increases.
II. PGearS (Price of samsung watch):
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The sign of the coefficients PGearS (Price of Samsung watch) is (1520) positive, which
mean there is a positive relation between PGearS (Price of samsung watch) variable with
the QAW (dependent variable). If the price of Samsung watches increase, the demand of
apple watches also increase, if the price of Samsung watches decrease, the demand of
apple watches also decrease. Because the apple & Samsung watch are substitute.
Substitute are the goods that can serve as replacement for one another, when the price
of one increase demand for other increase & when the price of one decrease demand
for other decrease.

III. PPebble (Price of pebble watch):

The sign of the coefficients PPebble (Price of Pebble watch) is (1200) positive, which mean
there is a positive relation between PPebble (Price of Pebble watch) variable with the QAW
(dependent variable). If the price of Pebble watch increase, the demand of apple watch
also increase, if the price of Pebble watch decrease, the demand of apple watch also
decrease. Because the Pebble & Apple watch are substitute. Substitute are the goods
that can serve as replacement for one another, when the price of one increase demand
for other increase & when the price of one decrease demand for other decrease.

IV. PiPhone6 (Price of iPhone6 watch):

The sign of the coefficients PiPhone6 (Price of iPhone6) is (1200) is negative, which mean
there is an inverse relation between PiPhone6 (this variable) with the QAW (dependent
variable). If the price of iPhone6 increase, the demand of apple watches decrease, If the
price of apple watch decrease, the demand of apple watch increase. Because the
iPhone6 & Apple watch are complementary goods, complementary goods are the Goods
that “go together”; a decrease in the price of one results in an increase in demand for
the other and vice versa.

V. A (Advertisement Expenses)
The sign of the coefficients A (Advertisement Expenses) is (44) possitive, which mean
there is a positive relation between A (Advertisement Expenses) variable with the QAW
(dependent variable). If the Advertisement Expenses increase, the demand of apple
watch also increase, if the Advertisement Expenses, the demand of apple watch also
decrease.

Q no 6:

1) Calculate the QAW, using the above values and the demand function in Figure 1.
ANS: QAW = -150000 – 2400*349 + 1520*380 + 1200*220 – 1200*299 + 44*15500

QAW= 177200

2) Calculate QAW only changing PAW to values given in the table. This means keep PGearS, PPebble , PiPhone6
and A fixed.

ANS:
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PAW 300 310 320 349 350 360 380 390 400

QAW 294800 270800 246800 177200 174800 150800 102800 78800 54800

3) Using the table above draw a demand curve. -1 axis not labelled

QAW

350000
300000
250000
200000
Qaw
150000
100000
50000
0
300 320 340 360 380 400

4) For each of the situations below, explain the effect on the demand curve.

1) Increase in price of AW from $349 to $400

If prices of the apple watch, increases then demand of the apple watch decrease & it is moment
along the curve.
5/10 values missing

400

349

2) Increase in price of Gear S from $380 to $400

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If Samsung watch prices increase the demand of the apple watch increase, & this is a shift right
ward because Samsung and apple watch has both are substitutes.

3) Decrease in price of Pebble from $220 to $150

If the prices of the Pebble decrease the demand of the apple watch decreases & this is the shift leftward
because Pebble and apple watch has both are substitutes.

4) Decrease in price of iPhone6 from $299 to $250

If the price of the i-phone6 decreases then demand of the apple watches increase because it is
complementary goods & this is a rightward shift.

5) Increase in Advertising budget from $15,500 to $ 17,000

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If an increase in the budget of advertising, then demand of the apple watch increase & this is a
shift right ward

6:What is the marginal cost of producing one more Apple Watch

ANS: marginal Cost is 84

Q no 7: How will Apple’s entry in the smart watch industry impact the following?

a) The other suppliers. Sketch a diagram to show the affect

Apple watches entry decrease the demand of other supplier.

-1
Not according to case study. Cost of production is likely to fall
and availability of components will increase so supply curve will
shift outward.

b) Healthcare Industry
This will move the health industry more efficient.
c) Society in general
People of society feel easy to use smart watch.

Q no 8: Do you own a smart watch? If not, find a friend or family member who does. Ask
following questions.
a) Which smart watch brand do you/they have?
Samsung
b) What price did you/they buy it for?
About 20,000
c) What was your/their budget constraint when buying the watch?
About 18,000
d) What was yours/their opportunity cost in buying the watch? Explain in terms of what
you/they gave up to buy it.
A Laptop
e) Why did you/they choose the brand you/they did? What were the “substitutes” or
“complements” involved in the purchase decision?
Samsung Brand
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f) Would you/they want to buy an upgrade when it is released?

No,
g) If yes, what is your/their reservation price for it? If no, why?
It’s so costly
h) The watch can most likely be resold. How much can you/they resell it for? (If you/they
don’t know exactly, come up with a reasonable estimate, for example 60% of the
original value)
6000
i) If you/they don’t sell it, what is the opportunity cost of keeping it?
I have no idea.
-1;
OC is the resale value forgone if watch is kept
THE END